19 April 2007

finextra: Failed Sepa transactions to cost banks EUR1.3bn

New research released by LogicaCMG indicates that the cost to banks of dealing with failed Sepa transactions could rise as high as EUR1.3 billion immediately following the introduction of the single euro payments area in January 2008. The survey - conducted by Coleman Parkes - covered 102 of the major banks operating in Europe, which together represent in excess of 70% of total payment volumes.

The research found that around 35% of retail banks expect operational problems in the addressing and processing of Sepa payments. The impact on banks of failed transactions is expected to be the costs of handling exceptions - which was cited by 63% of reposndents - and a correspodning increase in the number of payments returned to the originator (60%).

LogicaCMG estimates the average cost of dealing with a failed transaction at around EUR6. Based on banks' own estimates of Sepa volumes in 2008 this would translate into potential total costs of almost EUR1.3 billion during next year, assuming STP rates of 80%. If banks manage to maintain STP rates of 90%, total costs are estimated at EUR650 million.

The research also finds that 17% of banks expect difficulties in identifying the correct intermediary routing information for receiving banks. Despite the increased complexity of the pan-European retail payments market only 60% of banks in the ueo zone have plans in place to resolve the issue of Iban and BIC transaction addressing and routing.

Over half of the banks surveyed (59%) also cite damage to reputation as a potential cost related to failed Sepa transactions.

Simon Bailey, payments director, global financial services, LogicaCMG, comments: 'Failed retail payments transactions will be very apparent to customers. In an industry as competitive as retail banking, such failures could have damaging consequences and it would seem evident that current plans do not appear to address this issue.'

© finextra